CapitaMall Trust

Kim Eng on 15 June 2012

Bugis+ opens its doors. We visited Bugis+ a week after its major anchor tenant UNIQLO launched its duplex flagship store, which is UNIQLO’s first street-level store in Singapore. We were encouraged by the footfall even though AEI works are not fully complete and we believe that CapitaMall Trust (CMT) will be able to bring Bugis+ up to its desired level of operation as projected. Maintain BUY.

Synergies evident between Bugis Junction and Bugis+. With UNIQLO’s 20,000-sq-ft shop as the main anchor, Bugis+ will be an extension of Bugis Junction, drawing the young and trendy that makes up its targeted captive market. By July, the bulk of the AEI works should be complete, and other offerings like the cineplex will help to attract even more shoppers when they open. Management estimates the yield-on-cost post AEI will be 5.8%, taking it much closer to Bugis Junction and vindicating its acquisition.

Portfolio still substantially catered to necessity shopping. Even though Bugis+ is geared towards lifestyle discretionary spending, CMT’s portfolio of malls remains predominantly catered to necessity shopping, accounting for approximately 73.1% of gross revenue as at end-2011. Apart from the normal rental reversion, DPU growth will also be supported by the incremental contributions from the AEIs at Clarke Quay and Atrium@Orchard when they are completed.

Hougang Plaza divestment completed. The sale of Hougang Plaza to a JV comprising Oxley Holdings and Lian Beng Group for a consideration of SGD119.1m has been completed. The divestment of this non-core asset will net CMT a handsome gain of SGD83.8m, as the new buyers look to redevelop the property. The sale is a positive indicator that the REIT is open to divesting some of its non-core assets if the right offers come along.

A ‘must-own’ stock. Notwithstanding global economic growth concerns, we believe that CMT can extend its steady growth in DPU, making it a “must-own” investment in our view. Maintain BUY, with our DDM-derived target price unchanged at SGD2.20.